Why won't the bank approve our USDA loan?

Curious as to why we are such a high risk, and if you know of any more lenient type lendors for our situation. My scores are 609 (bad, I know), 660, and 633. Husband's scores are 711, 728, 728. Our annual income is about $72K with a current monthly debt of $1500 mostly consisting of student loans. We made an offer on a home for $65K in a rural development area in Iowa. Yearly taxes of only $1100. Our income is close to limit, but still eligible for the program. My husband has a flawless credit background, just a lot of student loan debt. I have one late payment from 5 years ago and a collection of $2400 from a college from a year ago. The reason I refuse to pay this is because I was on bedrest from a difficult pregnancy and the school refuses to recognize this as a reason for dropping out of classes. Our bank pre-approved us, then denied us in the end. Our current rent we've been paying for the last few years has actually been MORE than what our mortgage payment would be after insurance and taxes. We even told the bank we would be willing to settle on the collection amount prior to closing (July 18th) if it was contingent upon approval.Is there any hope anywhere?
by birdst_995_268from Northwest,
Iowa. Apr 30th 2012 Reply

I do a ton of RD loans through the USDA and your scenario sounds like something that should easily get approved. The bank may have overlays to the Rural Development underwriting guidelines that won't allow them to approve it. Let me take a look at it. I can give you my experienced opinion at NO CHARGE & if it looks good, I'd be more than happy to assist you with it. My office is in Davenport, IA & I'd love the opportunity to help you out. My direct line is 563-324-9937 & my email is toddt@mainstreetfin.com. I look forward to hearing from you.

The collection is not a deal breaker for all lenders. If you use a broker like HALO it is likely that we would be able to get past the collection issue as long as the automated approval system gives an approval based off of the credit like it is. Also, if the husband could qualify on his own, that may be another option to look at.

Your first mistake is going to your Bank for pre approval... most banks have only one lending program.. if your scenario does not fit in their small box, you don't get approved... Ditch the bank... Now the real question is who is turning you down.. with USDA loans, the file is first underwritten by the lender, and then sent to USDA and re underwritten by them.. so it really depends on who is turning you down.. USDA or the bank.. if it's the bank, then more than likely, it's the banks own policy, not USDA... This is where you would benefit by using a LOCAL mortgage broker... the LOCAL broker has access to numerous lenders who work with a variety of different borrower profile/scenarios. Their experience can find the right lender for your particular set of circumstances, and will do it with lower fees, and costs... and because they are LOCAL, they are familiar with local customs that most out of state or internet lenders would not know about.. Also understand that with USDA, there is no "Automated Approval" as someone else suggested... USDA loans are all manually underwritten.... I'm a Broker here in Scottsdale AZ and I only lend in Arizona. If you or someone you know is looking for financing options, feel free to contact me or pass along my information. 480-287-5714 WilliamAcres.com

They should have told you a reason for the denial, and sent a document to you describing it. There are a lot of different reasons you could have the basic scenario you describe and still gotten denied. I suggest you go find out, then come back here and update us so we can give you a good answer. Remember, bank loan officers are unlicensed application clerks, so the other alternative is to simply contact a local licensed loan officer for a second opinion. Good Luck!

Although your loan scenario appears to be plausible, you may have several items that my prevent the bank that you went to from approving your request for a USDA Guaranteed RD Home Loan. Firstly, your credit maybe an issue if the minimum credit score required is 660 or greater in which case you would disqualify yourself due to your mid-FICO score at 633. Second, if the bank that you are dealing with is a USDA direct than their income limit restrictions would prevent you from moving forward as you potentially make to much household income for the USDA eligible area that you are attempting to buy a home. Lastly, you could simply be working with an incompetent bank employee and not a truly qualified mortgage professional. Good luck with your pursuit of home ownership.